Seven things to consider before lending money

A well made loan ensures the safe return of your money plus reasonable interest.  A poorly made loan can leave a hole where your money used to be, or worse!

Is the borrower gainfully employed?

If your borrower doesn't have a job, how are they going to repay the loan?  If the money is to start a business, see the next question.  If not, you'd better make sure they have some form of income they can divert into loan payments to you.  Lending money because someone doesn't have enough only works for the predators that use up and discard their borrowers.  For any responsible lender, a borrower with "insufficient" income is a poor candidate for a loan.

Does the borrower know the business?

If the money is to start a business, their plan had better include a way for the loan payments to get paid each month.  They also better have a solid background in the industry and a proven track-record of success in that industry.  Loaning money so someone can try something "they've always wanted to do" is a terrible idea.  If they don't know what they're talking about from actual experience, keep your money safely in your bank account.

Is the borrower a stable person?

Does your borrower speak clearly and amicably to you?  If you get the feeling this person is on the verge of a breakdown, talking around the subject, hiding something, easily angered or depressed, you should think twice before handing out your cash.  Dishonesty or mental illness can sap your portfolio of the rewards you should be getting.  Unless you're running a charity, avoid borrowers that cover up the truth or bounce between emotional states.

Is the borrower asking for too much or too little?

In your experience as a lender, does the need for the money and the amount match up?  Has the borrower provided a clear path to how money will be spent that makes sense to you?  If a borrower is asking for $5000 to open a new restaurant, they're not being serious about the real cost to open up shop.  Borrowing $50,000 to buy a car is a sign the borrower is not financially mature enough to drive something that expensive in the first place.  So unless the restaurant is a gumball machine or the car is a combine, pass.

Are they family or friends?

Many lenders are family members that loan money out of compassion.  Loaning money creates a master-slave relationship between lender and borrower.  If there's any chance the relationship won't survive the stress of a looming financial obligation, don't do it.  Better to say no and keep a friend than to lose money and friend.

Check references!

Still not sure if the candidate is worthy?  Request a list of references and ask these other people about the borrower.  If you get the impression the borrower is a jerk, or that everyone is lying to you, you have your answer.  If you get sincere people telling you how wonderful your person is, you're all set.  People tend to be extra nice when providing a reference.  If you get any indication that there might be something wrong, weigh that heavily.

Can you get some kind of surety or collateral?

It might be a worst-case-scenario, but if your borrower will put up collateral you have at least some guarantee that your money won't be completely lost if things don't work out.  Whether a car title, mortgage, appliance, jewelry, or something else, a little collateral helps ensure the borrower will pay on time and you have a "Plan B" if things go bad.

Once your borrower's intentions are thoroughly vetted, invest that cash with confidence that it'll return.  Nothing can compensate for proper diligence before the loan is made.